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Note 4 - Income Taxes
 12 Months Ended
Sep. 30, 2011
Income Tax Disclosure [Text Block]
4.     Income Taxes:

The components of income (loss) before income tax and income tax expense (benefit) are comprised of the following:

   
Years Ended September 30,
 
   
2011
   
2010
 
   
(Amounts in thousands)
 
Income (loss) before income tax:
           
U.S.
  $ 501     $ 1,448  
Foreign
    214       (299 )
    $ 715     $ 1,149  
                 
Income tax expense (benefit):
               
Current:
               
Federal
  $ 157     $ 410  
State
    39       51  
Foreign
    (12 )     (158 )
      184       303  
                 
Deferred:
               
Federal
    (16 )     (59 )
State
    19       (9 )
Foreign
    159       --  
      162       (68 )
    $ 346     $ 235  

Reconciliation of “expected” income tax expense (benefit) to “actual” income tax expense (benefit) is as follows:

   
Years Ended September 30,
 
   
2011
   
2010
 
   
(Dollar amounts in thousands)
 
Computed “expected” tax expense
  $ 243       34.0 %   $ 391       34.0 %
Increases (reductions) in taxes resulting from:
                               
State income taxes, net of federal tax benefit
    38       5.2 %     28       2.4 %
Foreign operations
    (85 )     (11.9 )%     (57 )     (5.0 )%
Change in valuation allowance
    (46 )     (6.4 )%     70       6.1 %
Permanent differences
    8       1.1 %     4       0.4 %
Stock-based compensation
    11       1.6 %     34       3.0 %
Foreign net operating loss
    163       22.8 %     --       --  
Uncertain tax liability adjustment
    14       2.0 %     (320 )     (27.8 )%
Tax refund adjustment
    --       --       79       6.9 %
Other items
    --       -- .       6       0.5 %
Income tax expense
  $ 346       48.4 %   $ 235       20.5 %

The Company recorded a consolidated income tax expense of $346 thousand in fiscal year 2011 reflecting an effective tax rate of 48.4% compared to a tax expense of $235 thousand in fiscal year 2010 with an effective tax rate of 20.5%. We utilized approximately $142 thousand of our net operating loss carryovers which were applied against our 2010 U.S. taxable income.

For the years ended September 30, 2011 and 2010, temporary differences, which give rise to deferred tax assets (liabilities), are as follows:

   
September 30,
2011
   
September 30,
2010
 
   
(Amounts in thousands)
 
Deferred tax assets:
           
Pension
  $ 2,142     $ 2,502  
Goodwill
    821       954  
Other reserves and accruals
    483       409  
Inventory reserves and other
    566       618  
State credits, net of federal benefit
    86       485  
Federal and state net operating loss carryforwards
    54       132  
Foreign net operating loss carryforwards
    1,898       2,874  
Foreign tax credits
    7       7  
Depreciation and amortization
    111       228  
Gross deferred tax assets
    6,168       8,209  
Less: valuation allowance
    (5,347 )     (7,205 )
Realizable deferred tax asset
    821       1,004  
Deferred tax liabilities:
               
Pension
    —       —  
Reserves
    —       —  
Gross deferred tax liabilities
    —       —  
Net deferred tax assets
  $ 821     $ 1,004  

The deferred tax valuation allowance decreased by $1.9 million, from $7.2 million at September 30, 2010, to $5.3 million at September 30, 2011. In assessing the realizability of deferred tax assets, the Company considers its taxable future earnings and the expected timing of the reversal of temporary differences. Accordingly, the Company has recorded a valuation allowance which reduces the gross deferred tax asset to an amount which management believes will more likely than not be realized. The valuation allowance was determined, by assessing both positive and negative evidence, whether it is more likely than not that deferred tax assets are realizable. Such assessment is done on a jurisdiction-by-jurisdiction basis. The Company’s inability to project future profitability beyond fiscal year 2013 in the U.S. and the cumulative losses incurred in recent years in the U.K. represent sufficient negative evidence to record a valuation allowance against certain deferred tax assets.

As of September 30, 2011 and 2010, the Company had U.S. net operating loss carryforwards for state tax purposes of approximately $ 1.5 million and $1.9 million, respectively which are available to offset future taxable income through 2029.

As of September 30, 2011, the Company had U.K. net operating loss carryforwards of approximately $8.8 million that have an indefinite life with no expiration.

Undistributed earnings of the Company’s foreign subsidiaries amounted to approximately $3.0 million and $3.7 million at September 30, 2011and 2010, respectively. The Company’s policy is that its undistributed foreign earnings are indefinitely reinvested and, accordingly, no U.S. federal and state deferred tax liabilities have been recorded.

In addition, the calculation of the Company’s tax liabilities involves dealing with uncertainties in the application of complex tax regulations in a multitude of jurisdictions. The Company records liabilities for estimated tax obligations in the U.S. and other tax jurisdictions. These estimated tax liabilities include the provision for taxes that may become payable in the future.

As of September 30, 2011, the total amount of uncertain tax liabilities was $0.5 million all of which would affect our effective tax rate if recognized. We do not expect any of these uncertain tax liabilities to reverse in the next twelve months. We recognize interest and potential penalties accrued related to unrecognized tax benefits in our provision for income taxes.

A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits is as follows:

   
Year Ended
September 30, 2011
   
Year Ended
September 30, 2010
 
   
(Amounts in thousands)
 
Balance, beginning of year
  $ —     $ 320  
Increases in tax positions in the current year
    458       —  
Settlements
    —       —  
Accrued penalties and interest
    14       14  
Decrease in current and prior year tax positions
    —       (334 )
Balance, end of year
  $ 472     $ —  

We file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The Company has reviewed the tax positions taken on returns filed domestically and in its foreign jurisdictions for all open years, generally 2008 through 2011, and believes that tax adjustments in any audited year will not be material.